Martineau Education Bulletin

June 2009

www.sghmartineau.com

Key contact:
Smita Jamdar
Partner and Head of Education
T: 0870 763 1332
E: smita.jamdar@sghmartineau.com

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Contents

Strategy, Students and Governance

Charities Act 2006 update - increased regulation of universities | read
As the new regime approaches we update you on the latest developments.
Town -v- gown: dealing with student nuisance in the community | read
We examine the issue of student nuisance in private accommodation, the potential liability (if any) of universities and any action they can take to deal with that nuisance.

Finance, Technology and IP

The joint commercialisation of technology from UK and Chinese universities | read
This article examines the possibilities for collaboration between UK and Chinese universities for the joint commercialisation of technology through the formation of venture capital funds. We consider why collaboration is important, why a venture capital fund is the right catalyst for collaboration and, finally, what the structure of the fund might look like.
Compensation for employee inventors | read
Following the first successful UK claim for employee inventor compensation, in which the High Court ordered a total payment of £1.5 million to two former employees, this article looks at how and when employees can make a claim and assesses the broader impact of the case.
Green light to fast track for clean tech patents | read
We comment on the recent government announcement that environmentally-friendly patent applications will be fast-tracked.
Banking facilities | read
In this article we highlight the importance of compliance with the terms of your banking facility agreement, particularly in the current economic climate. We set out some of the key issues to consider, such as events of default, financial covenants, warranties and undertakings.

Estates

The competitive dialogue procedure: how European rules affect new university campus schemes and other major projects | read
Universities would be unwise to assume that large scale development projects fall outside the public procurement rules. We examine when the rules apply and what options universities have for advertising and running the procurement process, looking in particular at the competitive dialogue procedure.
Planning update | read
We report on key provisions of the Planning Act 2008 which have recently come into force, including the new process for planning and enforcement appeals.

Human Resources

Beware of over generosity when making severance payments to departing employees | read
We report on a recent case in which the High Court refused to order payment of a severance payment agreed with the Chief Executive of an NHS Trust, on the basis that her performance was so bad that the Trust's decision to pay her a severance payment was perverse and ultra vires.
Part-time workers must find a real comparator to successfully claim less favourable treatment | read
We examine a recent case which looks at two crucial aspects of what a part-time worker must show in order to demonstrate less favourable treatment under the Part Time Workers (Prevention of Less Favourable Treatment) Regulations 2000.

Full article details

• Strategy, Students and Governance

Charities Act 2006 update - increased regulation of universities | back to top

HEFCE expects to be amongst the first tranche of principal regulators of exempt charities to be appointed under the Charities Act 2006, probably at the end of November this year. The rather draconian powers of the Charity Commission to intervene in the affairs of universities as exempt charities will be exercisable from the same date, but only after consultation with HEFCE as principal regulator.

Under this new jurisdiction HEFCE and the Charity Commission will be able to consider issues arising from universities’ activities as charities which come to their attention after the effective date. HEFCE is seeking to clarify transitional arrangements; it currently expects to review institutions’ 2009-10 financial statements in its new regulatory capacity, even though they include transactions before the effective date, but not those for 2008-09.

UUK’s Charities Act HE Forum has considered draft statutory instruments issued by the Office of the Third Sector, containing regulations for the appointment of HEFCE and the other first tranche of primary regulators, and the future designation of exempt charities. A third draft statutory instrument confirms the exception (cf exemption) from the requirement to register for students’ unions turning over less than £100,000 and, subject to the same threshold, of colleges and halls at Oxford, Cambridge, Durham and Newcastle.

The OTS is to write to the 18 English HEIs which are currently registered charities (mainly religious foundations originally established as trusts), asking them to confirm that they are willing to become exempt charities, probably next year. In Wales, there is a peculiar reversal of this process, as there will be no primary regulator and all HEIs there will be required to register with the Charity Commission.

HEFCE now has a section of its website dealing with regulation of HEIs as charities: http://www.hefce.ac.uk/finance/charities/

Smita Jamdar
Partner and Head of Education
T: 0870 763 1332
E: smita.jamdar@sghmartineau.com

© Martineau 2009

Town -v- gown: dealing with student nuisance in the community | back to top

Universities occupy significant positions in the local community, for example as major employers and as organisations seeking to attract contracts for training and research from local businesses. Obtaining and maintaining the goodwill of the community is therefore extremely significant for universities’ good reputations and hence, they often feel compelled to take action against students when they engage in anti-social conduct in the local community, regardless of whether that conduct takes place in university-owned property or not.

1. Nuisance

A student engages in private nuisance if he or she interferes with the use or enjoyment of land or with rights over land. It includes physical damage to property and unreasonable interference with comfort or convenience such as excessive noise (e.g. late-night parties). Remedies available to victims are damages, which are usually nominal unless the nuisance causes serious damage (e.g. diminution in value of the property), specific expenses incurred such as repairing broken windows, “loss of amenity” (such as inability to sleep as a result of noise; damages in this category will usually only be nominal), injunction (a court order requiring the perpetrator to take steps to stop the nuisance) and abatement (a right for a victim to take steps to stop the nuisance without recourse to legal proceedings).

2. Is the university liable for nuisance?

Legal responsibility for nuisance generally lies with whomever has possession and control of the property from which the nuisance is emanating.

• Halls of residence

Students usually occupy accommodation in halls of residence by means of a mere licence (i.e. a contractual, rather than a proprietary, right), and possession and control of the halls of residence remain with the university. If student misconduct in halls amounts to nuisance which causes damage to neighbours, the university may therefore be liable, though the ability of the neighbours to claim significant damages may be difficult. Nevertheless, appropriate provisions should be included in the accommodation contract prohibiting conduct amounting to a nuisance to neighbours, with a right to discipline a student for breach and termination of the licence in cases of serious breach.

• University-owned houses

If, on the other hand, students occupy university accommodation by means of a tenancy (i.e. a lease), the university will not have control or possession of the property and could not therefore be liable for any nuisance caused by the students residing there. However, if there are reciprocal freehold covenants which allow one freehold owner to pursue another for behaviour which is akin to nuisance, the university (if it is the freehold owner of the property concerned) could be liable for breach of restrictive covenant.

Universities can in any event impose anti-nuisance requirements in the lease as a means of controlling student conduct, in the interest of good public relations, notwithstanding the absence of any rights of neighbours to obtain a remedy against the university.

• Private accommodation

Pressure is often exerted on universities by local residents to intervene to remove nuisance and to discipline students who are engaged in anti-social behaviour in private accommodation.

There is no legal duty on universities to act in these circumstances. Furthermore, the law of nuisance confers no right on a university to take steps to prevent nuisance occurring or to deal with it once it has occurred. Only the victim (i.e. the neighbour) is entitled to take action against the perpetrator of the nuisance. The local authority may also become involved under the provisions of the Environmental Protection Act, as the noise may constitute a statutory nuisance.

Universities sometimes make it a disciplinary offence to cause nuisance in private accommodation because, it is argued, it brings the institution into disrepute. The following legal constraints apply to a university in implementing such a policy, and may be the most likely sources of challenge:

(i) The right to private and family life

As a result of the Human Rights Act, the university cannot act in a manner incompatible with the rights guaranteed to individuals under the European Convention of Human Rights. Consequently, the student’s right to private life (which includes his/her home) is a factor to be considered in any action the university takes. This consideration is all the more relevant in the context of extending the university’s authority to activities conducted in the student’s own home, which is neither owned nor managed by the university.

The right to privacy is not absolute and it can be interfered with by the university if it is necessary in the interests of preventing disorder or crime, or the protection of the rights of others. The interference must be no more than is necessary to achieve any of these purposes. In other words, the actions which the university takes must be proportionate to the risk of disorder or crime occurring, or the threat to the rights and freedoms of the local residents.

A university which disciplines students for “misconduct” in private accommodation may be vulnerable to challenge on the grounds that its interference is not necessary to achieve those valid purposes. The police are responsible for law enforcement and can be called upon by local residents in the event that a criminal offence is being (or likely to be) committed. In rented accommodation, the landlord will have a contractual right to enforce the nuisance provisions of the lease and complaints of misconduct can be addressed to him/her. The local residents may in very limited circumstances have a civil legal remedy against any landlord who fails to tackle nuisance emanating from his/her properties. In addition, the local residents may have a remedy to abate nuisance via local authority procedures. In view of the statutory and civil mechanisms already available to the local residents, the university’s intervention may therefore be regarded as disproportionate.

A university may be able to resist a challenge on this basis by limiting its intervention to circumstances where the statutory or civil enforcement mechanisms are not effective or reasonably accessible or available to local residents. Clear provision should be made in the student handbook and in the disciplinary procedures for these measures, and they should be drawn specifically to the attention of students on enrolment, if possible.

(ii) Consumer protection legislation

Students have the benefit of protection of consumer protection legislation in relation to their contractual relationship with a university. Such legislation seeks to prevent the university from exploiting its superior bargaining position to the detriment of the student. In essence, this legislation renders unenforceable any term which gives powers to the university to the students’ detriment, particularly where the university would not have such a power under the general law (i.e. in the absence of the specific provision in the student handbook/disciplinary procedures).

It is arguable that a student could challenge the university’s procedures as unenforceable on the ground that they contain an unfair contractual term.

(iii) Improper exercise of powers

It is also arguable that the rights and powers conferred on a university to discipline students are primarily for the purpose of regulating its own community. Although most disciplinary procedures include a provision about “bringing the university into disrepute”, such charges are notoriously difficult to prove and should not be seen as carte-blanche for taking action in circumstances where the university’s ability to maintain order in its own community is not seriously threatened. Therefore, in seeking to take disciplinary action against students for conduct which does not affect other members of the university’s community, and which falls short of a criminal offence that has been duly prosecuted and proved through the courts (another common charge which encompasses off-campus incidents), the university could be accused of abusing its power to take disciplinary action. Alternatively, the university could be said to be using its powers for an improper purpose (i.e. to maintain its reputation in the locality, or to be seen to be responding to pressure from local residents). A disgruntled student might seek judicial review of the disciplinary action, which, if successful, could prohibit the university from proceeding.

These are potentially serious risks, although whether they materialise will depend on whether any student is sufficiently aggrieved to bring a challenge on the above or any other grounds. Universities wising to implement such steps ought to concentrate on low-level and informal intervention, designed almost to conciliate the “warring parties”, rather than relying too heavily on formal disciplinary action which should be reserved for the most serious or persistent cases of misconduct.

Geraldine Swanton
Senior Associate, Education Team
T: 0870 763 1455
E: geraldine.swanton@sghmartineau.com

© Martineau 2009

• Finance, Technology and IP

The joint commercialisation of technology from UK and Chinese universities | back to top

Martineau was recently appointed as the exclusive UK legal adviser to the Jiangsu Institute of Technology Transfer with a brief to advise, in particular, on the formation of international venture capital funds to finance the commercialisation of technology from joint collaborations between UK and Chinese universities. Such a fund would invest a combination of private and public money in small spin-off high-growth businesses and the commercialisation of jointly developed intellectual property by out-licensing. Participating universities would be invited to submit joint bids for funding. This would drive collaboration.

Why collaboration is important

It is difficult to commercialise new technology. Investors can be wary of the length of time which might elapse before they will achieve a return on their investment, if they achieve one at all, and they are more likely to suffer a loss. The process requires the right people and enough capital. Both are hard to find. There are many barriers to success. International technology co-operation and transfer can help to overcome some of these barriers.

If selected intellectual property from universities in the UK is combined through the catalyst of a venture capital fund with intellectual property from Chinese universities, the UK may increase the base of its fundamental knowledge and make it easier to attract capital and to attract and retain the experienced personnel who will carry out the research and development necessary to innovate new technologies. The pooling of selected fundamental knowledge may also shorten the path to the commercialisation of technology. It may also be cheaper and more efficient than going it alone. The methods and mechanisms by which information is shifted across the borders between co-operating nation states – between the UK and China - may prove to be vital factors in achieving the technological advantages and commercial relationships which enable UK trading companies to increase their productivity, to increase their innovation of new and better goods and services and to increase their ability to make superior profits as they compete in global markets.

Why a venture capital fund is the right catalyst for collaboration

China will acquire Western technology.

The export and import of goods may transfer technology though reverse engineering, not always intentionally of course, by inspiring others to make improvements or develop new technologies; or through the need to comply with international standards. Often the over-riding concern is to prevent unintentional reverse engineering and imitation, but too much caution can stifle development and innovation and, on its own, overly cautious foreign direct investment will limit the technology which is transferred and thus the value that can be extracted for the transfer (whether voluntary or involuntary).

Collaboration through the controlled medium of a venture capital fund may result, for both sides, in an exchange of technology in return for investment, as well as commercial and political dividends which would otherwise not be secured.

What the structure of the fund might look like

Such a fund could be modelled on the UK scheme for enterprise capital funds so that, modified as appropriate, a UK China university fund would have the following characteristics:

a commercial fund, investing a combination of private and public money in small high-growth businesses or the commercialisation of intellectual property by out-licensing;
up to two-thirds of the capital in the fund would be provided in equal shares by Chinese and UK government-controlled investors, in return for a preferred return at or close to Gilt rate, and a limited share in any profits of the fund. The preferred return is intended to cover the government investors’ cost of capital and their profit share is intended to ensure that the participation by government investors is for ‘commercial’ as well as for political purposes;
the government investors will commit to providing up to two-thirds of the money in the fund, with the remainder to be raised from private investors;
in general, investments will be drawn down into the fund on a ‘side-by-side’ basis from the government investors and private investors, according to their respective shares of the total funding committed to the fund;
once the fund has met its expenses and liabilities (including fund management fees), subsequent proceeds from investments will be distributed to investors:

first, as a prioritised return to the government investors, equivalent to interest charged on the government investors’ funds drawn down into the fund. The rate applicable for this might be around 4.5 per cent;
once a prioritized return has been made, as repayment of capital to the government and private investors; and
once all capital has been repaid, as a distribution of profits to the government investors and private investors in a profit-sharing ratio of say, (i) 10% to the government investors; (ii) 90% to the private investors; and (iii) (where appropriate and as a deduction from the profit share of the private investors) as carried interest to the fund managers.

Kavita Patel
Partner
T: 0870 763 1645
E: kavita.patel@sghmartineau.com

© Martineau 2009

Compensation for employee inventors | back to top

In the first successful UK claim for employee inventor compensation, GE Healthcare has recently been ordered by the High Court to pay a total of £1.5 million compensation to two former employee inventors.

This makes the possibility of employees being awarded compensation for their inventions all the more real, and may influence university royalty sharing arrangements. But how and when can employees make a claim, and what will be the broader impact of this case?

How can universities own employee inventions?

In the absence of agreement to the contrary, an invention created by an employee of a university will generally belong to the university as the employer. This applies if the invention was created during the normal course of employment (for example most university researchers) and if inventions might reasonably be expected to result from those duties.

Carefully worded employment contracts assist in ensuring that the university, or any other relevant party as agreed, has rightful ownership of all valuable intellectual property created by their employees (including by teaching staff), and importantly, the ability to fully and freely exploit this intellectual property.

A recent Australian case serves as a potent warning, and although it is not binding law in the UK it is relevant for UK courts. The University of Western Australia appointed Dr Gray as Professor of Surgery in 1985 to teach, conduct and stimulate research. During his employment he developed a range of cancer technologies, which he later assigned to an external company (of which he then became a director). The court found that Dr Gray was not employed to invent - only to research - and so the invention was not made in the course of his employment duties. The University therefore had no rights in the invention.

To date, the approach in the UK has been to imply a duty to invent into any express duty to research, since research should (at least on occasion!) lead to inventions. It would be a surprise if the UK courts followed the Australian approach. However, universities may wish to consider including a specific duty to invent into employment contracts of anyone doing research.

How can employees claim compensation?

If ownership passes to the university as employer, a court may still award compensation to an employee representing a “fair share” of the benefit derived from the invention in certain restricted circumstances. It is not possible to contract-out of these provisions in order to avoid potential compensation payments.

The GE Healthcare case was brought under the “old” law, which applies to patents filed before 1 January 2005. This states that an employee needs to show that the patent obtained by its employer was itself of “outstanding benefit”. This is a very high threshold to overcome, as it involves taking a view on the value of the patent (which may be a patent anywhere in the world), rather than the underlying invention.

This threshold was changed slightly in 2005 to require the invention itself to be of outstanding benefit. Due to the time taken to seek and obtain patent protection (and obtain a benefit) the effect of this change has yet to be fully demonstrated, but this less strict test means more cases are likely to be successful.

UK employee inventors have been particularly unsuccessful in bringing claims for compensation compared to those in some countries abroad, such as Germany and Japan. Indeed, all reported UK employee compensation claims prior to the GE Healthcare case have been unsuccessful (although some out-of-court settlements have been reported), and the law has been criticised as too vague.

The GE Healthcare case

The applicant employees, Dr Chui and Dr Kelly, were employed by medical devices company Amersham International, which became GE Healthcare on acquisition by General Electric in 2004. Dr Chui earned between £12,000 and £15,000 per annum for his employment in the mid 1980s; and Dr Kelly earned between £23,000 and £71,500 per annum until his retirement in 2003.

The employees formed part of a research team which first synthesised the P53 compound. This compound was used in the development of a radiopharmaceutical heart imaging diagnostic tool, branded by GE Healthcare as Myoview, for the detection of heart defects.

The Myoview diagnostic tool was patented in the late 1980s, launched worldwide by GE Healthcare in 1994, and is today a routine product. It was particularly successful for GE Healthcare, achieving impressive estimated sales exceeding £1.3 billion and winning a Queen’s Award for Technological Achievement. It allowed GE Healthcare to establish itself as a pioneer in the field, and to subsequently enter into a significant joint venture with Sumitomo, and successfully acquire Nihon Medi-Physics Co. Ltd and Nycomed.

The relevant legislation gives no guidance as to what is meant by “outstanding” or to what extent employees should be compensated. However, relevant case law provides that it must be something special or out of the ordinary, and more than would normally be expected from the employee’s paid duties.

The worldwide success of Myoview, substantial revenues generated, deals which it enabled GE Healthcare to conclude, and subsequent transformation of the business convinced the court that the invention was of outstanding benefit to the business.

The court then calculated employee compensation as a percentage of the estimated £50 million value of the patent - a figure based upon a “very conservative” estimate of the reduction in sales which would have been caused by generic competition if a patent had not been granted.

It was decided that the employees should receive 3% of the value of the patent (2% to Dr Kelly, and 1% to Dr Chui), which was partly based upon the percentage royalties payable by GE Healthcare to consultants. Although the £1.5 million figure sounds a huge sum, the court noted that in relative terms this was only approximately three days of Myoview profits.

The impact of the decision

The decision is absolutely a landmark case in this area. The circumstances of the GE Healthcare case are not that different to many research and development areas where blockbuster inventions can bring massive profits. However, the Myoview product does seem to have been particularly significant to GE Healthcare, and the court commented that the company would have found it difficult to survive without the product’s success. Since the patents had expired, the court was easily able to calculate the value which the patents had brought to the company.

The fact that a court has now been willing to grant compensation to an employee inventor means that such employees are more likely to consider bringing such claims, especially under the less strict post-2005 law. They are also more likely to delve into their employment contracts and voluntary university inventor royalty sharing arrangements, and to question the reward which they receive for their inventions. Universities may therefore wish to take a fresh eye to employee contracts and inventor royalty sharing arrangements (perhaps in any IP policy review) to confirm the university’s stance on royalty sharing and to ensure that this is reflected in such documentation.

However, virtually all universities can take comfort in the fact that the percentage royalty awarded to Dr Kelly and Dr Chui remains significantly lower than most voluntary university royalty rates, and indeed much less than the 100% gained by Dr Gray in Australia.

Joanne Flack
Solicitor, Intellectual Property & Technology Team
T: 0870 763 1613
E: joanne.flack@sghmartineau.com

© Martineau 2009

Green light to fast track for clean tech patents | back to top

As part of the governmental drive to provide incentives to Clean Tech development, David Lammy (the Minister of State for Education and Intellectual Property) has launched a new patent initiative to fast-track environmentally-friendly patent applications.

Applicants must make a “reasonable assertion” of some “environmental benefit”. However, there is currently no definition of what these terms mean and so the scope of the new fast-track procedure could be very broad.

UK patent applications with an environmental benefit will now be accelerated ahead of standard applications, and should be granted more quickly. The fast-track procedure applies to new applications filed from 12 May 2009 and retrospectively to existing applications filed before that date.

Standard applications can take two or three years to process, but it is hoped that for Clean Tech patents this time will drop to less than 9 months from the application date.

This will help reduce the uncertainty and risk to those investing in green technologies invented in the UK. The expectation is that further investment will be attracted to these technologies accordingly.

It is hoped that shorter patent grant terms will mean that more patented Clean Tech will reach the market earlier. This should lead to an earlier than expected return on investment for investors and should accelerate the fight against climate change.

Des Burley
Partner, Intellectual Property & Technology Team
T: 0870 763 1107
E: des.burley@sghmartineau.com

© Martineau 2009

Banking facilities | back to top

In the current economic climate it is inevitable that your bank will be reviewing the terms of the loans that it has made more closely than ever. For that reason it is important that you ensure compliance with all of the applicable terms of your facility agreement because non-compliance, potentially even a minor/technical breach, can have very onerous consequences for the university.

If you are aware of circumstances that are likely to cause a future breach (and assuming you are unable to take action to prevent those circumstances leading to a breach) you should consider being pro-active and putting together a proposal to the bank that explains why the circumstances have arisen and, to the extent factually possible, why this will not be a problem going forward.

As you will be aware, there are many different types of facility agreement depending on the finance needs of your university. However, common features are that the documents are usually both lengthy and complex. In order to help you cut through the paperwork, we set out below some of the key issues to consider. (Please note that what is said below does not apply to normal overdraft facilities which are by their nature repayable on demand.)

The nature and purpose of the facility will have an effect on the terms of the facility agreement but the issues set out below will be relevant to the majority of term loan documents and revolving facility documents.

Events of default

The facility agreement will include a list of events (known as events of default) which if they occur will permit the bank to take further action. The primary purpose of the financial covenants, undertakings, representations and warranties referred to below is that if they are breached it will be an event of default. The bank will typically have a range of options if an event of default occurs such as:

cancelling any undrawn amount of the facility;
requiring that the facility be on demand from that point onwards so that the bank can call it in at any time;
requiring immediate repayment of the facility - this will generally be very much a last resort and you would ordinarily expect to be able to negotiate new terms rather then have the facility called in.

Events of default usually include (amongst others); non-payment of principal or interest; insolvency of the university; breach of representations and warranties; breach of undertakings (although often the facility agreement will include a short period during which the university can remedy a breach of undertaking, therefore regularly monitoring compliance is very important to give you the best chance of remedying a breach within the timescale); ceasing to be entitled to HEFCE funding; and a cross default mechanism which means that if the university is in default of the terms of other facilities it will be an event of default (for this reason it is important when entering into any borrowing arrangements, irrespective of whether they are in smaller amounts or considered to be less important, that you agree terms that are consistent with those in the main facility agreement, because if you accept more onerous tests in the smaller facility, the bank will in effect also apply those tests to the main agreement).

Financial covenants

Facility agreements usually contain financial covenants. The financial covenants serve as an early warning for the bank so that if the university’s financial performance falls below the required levels, it will trigger an event of default and the right for the bank to take further action. Common financial covenants include:

a requirement to not incur a historic cost deficit in excess of the HEFCE requirement; and
a requirement that the total cost of the borrowing does not exceed a certain percentage of the total income of the university in any financial year.

Representations and warranties

The facility agreement will include an extensive list of representations and warranties that the university gives on the date of acceptance of the facility. The majority of those covenants will then be deemed to be repeated on each date a drawdown of the facility is made and often also on each date that interest is due to be paid. You need to keep these issues under regular review to ensure that you remain in compliance on each date that they are deemed to be repeated. Common representations and warranties include quite fundamental issues such as the university having the authority to:

enter into the facility agreement and related documents; and
create binding obligations.

But they will also include issues such as:

that the university is in compliance with all laws, licences and authorisations;
that no litigation has been commenced or is threatened against it; and
that there is, at that time, no event of default or event or circumstance that could potentially result in the occurrence of an event of default. If your facility agreement includes a representation of that type, you need to be aware of the risk that a “potential” event of default could trigger an actual event of default because of a breach of the representation.

Undertakings

The facility agreement will also include an extensive list of positive and negative undertakings which are likely to include amongst others:

restrictions on borrowings, creating security interests and disposing of assets; and
obligations to maintain insurance, use consistent accounting principles and comply with all applicable laws, licences and consents.

Likely consequences

If your university is in breach, the consequences are likely to be any one or more of the following:

no new advances and a restriction on the rollover of existing advances;
an increased interest margin and/or an amendment fee to agree new terms for the facility; and
a requirement to provide security/additional “top-up” security.

David Doogan
Partner, Banking Team
T: 0879 763 1618
E: david.doogan@sghmartineau.com

John Rice
Partner, Banking Team
T: 0870 763 1572
E: john.rice@sghmartineau.com

© Martineau 2009

• Estates

The competitive dialogue procedure: how European rules affect new university campus schemes and other major projects | back to top

Publicly-sponsored regeneration schemes have been at the forefront of the government’s economic and social policy since the decline of former staple industries the 1970s and 80s. Such schemes can focus on housing and community facilities, employment, technology, innovation, education and the cultural industries. Many readers will be very aware of the government's view of the potential of universities and colleges, rightly or wrongly, to act as engines of economic development and physical regeneration of cities and communities.

There may be a temptation on the part of the public sector to characterise these schemes as land deals, lying outside the scope of the public procurement regime. Although universities will be aware of the rules as to best value, they might not recognise the relevance of the more stringent regime laid out in the public procurement rules, now embodied in the Public Contracts Regulations 2006 (“the Regulations”).

Case law has made it clear that a large scale development scheme, in which a public authority contracts with the private sector to obtain specific development outcomes, cannot be regarded merely as a land deal and must be advertised publicly. An example might be a university seeking to procure a complex campus including teaching facilities, a business school, student accommodation and public realm. A joint venture of this type has some of the characteristics of a works contract and a services contract. Its estimated gross development value is almost bound to exceed the statutory threshold of £3.54m, above which non-central government entities must advertise their works contracts. Therefore, the university must advertise the opportunity in the Official Journal of the European Union (“OJEU”) and procure the campus project competitively.

When advertising for major works, a public authority will almost certainly have to use either:

the restricted procedure - for works and services contracts of clear content, capable of accurate pricing on competitive tendering; or

the competitive dialogue procedure - for large, complex schemes, where the authority is relying upon the private sector to help define the physical and technical content, and where there are a number of ways of defining value.

Under the restricted procedure, the authority prepares a shortlist of candidates based on responses to pre-qualification questionnaires, and then issues and obtains full tenders, and awards the contract to the bidder offering either the lowest price or the best all round value for money.

The competitive dialogue procedure (“CDP”) is very different and the UK government now accepts the CDP as mandatory for PFI/PPP schemes. It is clear that every public authority procuring a large, complex funded development, in which the private sector is relied upon to define many of the main characteristics, must use the CDP.

To pursue the above example, a university may be able to estimate the cost of reclaiming a large, contaminated site and the cost of building a multi-faceted campus scheme on it. One could also probably estimate the end-use value of the scheme. The choice before the university (in theory at least) is whether:

to develop directly - to carry out its own scheme, engaging a number of external consultants and advisers to prepare the design solutions and let the various works contracts; or

to take the site to the market as a development opportunity: in other words, ask the market to devise the scheme on certain agreed assumptions.

In the latter case, the university is not looking for specific buildings, but solutions for viable schemes, which it can then compare and evaluate in accordance with set criteria in order to decide which developer to engage. Viability depends upon a range factors such as:

abnormal costs (decontamination, ground stabilisation);

market conditions in the relevant sectors;

planning constraints; and

land take and infrastructure.

A further, potentially crucial factor could be the level of public sector intervention, whether through funding support for land decontamination and infrastructure, through a strategic CPO, or through a specific form of public provision.

The essence of the CDP is the application of objective criteria which address these sorts of factors and which enable, say, three outline schemes supported by economic appraisals to be meaningfully and transparently evaluated. So far, universities have only adopted the CDP in relation to PPP-type student accommodation schemes, although there is one interesting exception to this in the University of Sheffield’s partnership for the reconfiguration/retrofitting of its entire estate in order to reduce the University’s carbon footprint and achieve major new energy efficiencies.

None of this means that universities are prohibited from doing simple land deals with a view to securing new development. However, even large-scale section 106 agreements for the provision of high value public infrastructure are under scrutiny. Therefore, from a compliance perspective, the more competition introduced into the process, the better. And public bodies who are tempted to present schemes as land deals in order to “get round OJEU”, should carefully question their motives. The Regulations are essential to ensuring proper use of public money and avoidance of corrupt practice. Compliance is easier if the process is planned using suitable contractual templates and evaluation materials. How to run the process will be the subject of an article in a future Bulletin.

Paul Mountain
Partner, Construction Team
T: 0870 763 1344
E: paul.mountain@sghmartineau.com

James Dilley
Partner, Competition & Procurement Team
T: 0870 763 1208
E: james.dilley@sghmartineau.com

© Martineau 2009

Planning update | back to top

Key administrative provisions of the Planning Act 2008 (the “Act”) came into force on 6 April 2009.

Appeals

On behalf of the Secretary of State, the Planning Inspectorate (“PINS”), who are responsible for the processing of planning and enforcement appeals, has been given the power to determine the method by which an appeal will be heard. Approved and published criteria will be used to determine whether an appeal will be heard by way of an inquiry, a hearing or by written representations. The intention is that the chosen method of appeal will be the most appropriate to the case, taking into account the proportionality of the method of appeal in relation to the nature and complexity of the appeal to be determined.

This is different from the regime for appeals submitted prior to 6 April 2009, whereby the appellant chose the method of appeal by indicating their choice on the appeal form. Universities should note the new changes as these will impact on the methodology and time it is likely to take for appeals to be heard and the costs of the appeal.

Parties are able to make representations as to their preference for the method of appeal, and ideally parties should try to be united in this regard. Any disagreement between the method of appeal sought by the parties and the PINS procedure team will be resolved by a qualified inspector. Reasons will be given where there has been a disagreement. PINS will determine the method of appeal within seven working days of receipt of a valid appeal.

In the event that both parties agree that a hearing or inquiry is the most appropriate method of appeal, then prior to submitting the appeal the appellant and local authority should seek to agree at least two dates on which the appeal could be heard.

Having said all of this, the method of determination is subject to change at any time before the appeal is determined, for example where there has been a change in circumstances or policy.

University appeals will fall within the non-householder appeals category and should be submitted within six months from the date of the decision notice giving rise to the appeal, or six months from the last date on which the local authority should have determined an application, in cases of non-determination.

PINS can refuse to validate an appeal where the appeal form is not completed properly or where it is felt that the reasons for the appeal are not set out clearly. This is a technical and important exercise. The appellant should set out the full grounds of appeal on the appeal form as this will avoid any difficulty introducing additional information later in the appeal process, which may attract a costs sanction.

A statement of common ground (which as the name suggests sets out the areas of agreement between the parties) is served on PINS and local authority within six weeks of the start date, which is the date on which PINS give written notice setting out details relating to the appeal and the procedure to be followed. In the case of hearings, the document is called a hearing statement. Service is effected in the same way as for inquiries.

Late representations and evidence will only be admissible in exceptional circumstances, which need to be set out by the party seeking to admit the evidence. It is recognised that seeking to introduce additional evidence causes delay and the new appeals process has been implemented, amongst other things, to make it more efficient. It is therefore important that all grounds are set out at an early stage.

Secondary legislation sets out the procedure for each method of appeal.

The costs regime has been extended to appeals determined by written representations. Accordingly a party can apply for an award of costs in the same way they would have done in an appeal by way of inquiry or a hearing.

PINS has also been given the power to charge a fee for an appeal. These provisions have not yet come into force.

Non-material changes to planning permission

The Act also introduced various changes to existing planning regimes. Amongst those changes is the practice of making non-material changes to a planning permission. Of course what is non-material is at the planning officer’s discretion, so there may be some debate as to what that might be in practice. It is hoped that guidance that will be published will assist in determining what does or does not amount to a material change. We believe that non-material changes may relate to matters such as landscaping. A site boundary change is more difficult to predict. In taking into account what is non-material, a planning officer’s decision will have to have regard to the effect of the non-material change and also the cumulative effect of previous changes to a permission, if any, made under this new provision.

An application for a non-material change can only be made by a person with an interest in the land (being the freehold owner or tenant, possibly a bank which takes possession of land and even the person with the benefit of an easement). Guidance may be more prescriptive as to who a person with an “interest in the land” can be. The power to make non-material changes includes imposing new conditions and removing and altering existing conditions, therefore a condition that may no longer be appropriate can be removed. Regulations relating to the form and content of the application will be published in due course and will include requirements for consultation and publicity.

Rebecca Thompson
Solicitor, Property Group
T: 0870 763 1388
E: rebecca.thompson@sghmartineau.com

© Martineau 2009

• Human Resources

Beware of over generosity when making severance payments to departing employees | back to top

The High Court has ruled, in the landmark case of Gibb v Maidstone and Tunbridge Wells NHS Trust, that the Trust was entitled to withhold a severance payment due to Ms Gibb under a compromise agreement because the severance payment was “irrationally generous”, ultra vires, and therefore legally void.

Background

Ms Gibb was Chief Executive of the Trust and its accountable officer. The Trust terminated her employment immediately before the publication of the Healthcare Commission’s report into outbreaks of the “super bug” C.difficile at hospitals managed by the Trust. Ms Gibb and the Trust entered into a compromise agreement which provided for a payment to Ms Gibb of approximately £250,000, being approximately £75,000 as payment in lieu of notice and a further £175,000 as compensation for loss of office. After publication of the final report into the outbreak, the Department of Health instructed the Trust to withhold payment of the £175,000 until further notice.

Ms Gibb brought a claim against the Trust for breach of contract in relation to this amount. She asserted that she was entitled to that sum under the terms of the compromise agreement or that, if the compensation payment was ultra vires, she was entitled to an equitable remedy of damages.

The Trust asserted that it was not obliged to pay the sum on the basis that the agreement to make the compensation payment was irrationally generous and ultra vires (i.e. that it had exceeded its legal powers in concluding the deal, which was not approved by the Treasury).

The decision

The judge concluded that the compromise agreement was irrationally generous and thus ultra vires. Ms Gibb’s claim for breach of the agreement therefore failed. The judge further denied Ms Gibb’s claim for equitable damages.

The judge’s rationale was as follows:

the Trust could reasonably have assessed its total potential liabilities to Ms Gibb at £145,000, being the payment in lieu of her contractual notice period and a sum equivalent to the maximum award for unfair dismissal;

once Ms Gibb was aware that the Trust was no longer prepared to pay her the additional severance payment of £175,000, she could have brought a claim in the Employment Tribunals within the normal time limits;

the payment to Ms Gibb of an additional £100,000 could not be justified on the basis of the management time and legal costs which the Trust would have incurred if the compromise agreement had not been concluded; and

the Trust had made the decision to pay the additional sum without carrying out a proper financial analysis and after taking into account irrelevant considerations, such as Ms Gibb’s previous good service. It had paid only lip service to the need not to be seen to reward failure and to regard payments over and above the statutory and contractual liabilities as exceptional.

Comment

This is the first time that a payment of this type to a departing executive has been declared void on these grounds. The decision is of particular significance for universities that have powers to make ex gratia payments to departing employees.

In light of this judgment, universities should ensure that they have guidelines for approving termination payments to senior managers and that these are followed. They should also ensure that they have documentary evidence justifying the business case for paying sums that are over and above the statutory and contractual entitlements to departing employees and that decisions are not influenced by subjective views of what a departing employee should receive.

HEIs can minimise the risk of settlement payments being challenged by following the principles set out in the HEFCE Circular Letters 21/2002, 15/2003 and 06/2009. Broadly, this means ensuring that severance packages paid to senior staff (currently defined as those earning in excess of £100,000) are based on contractual and statutory entitlements; that legal advice is sought during the negotiation; and that when a severance package follows poor performance, any payments are proportionate and not seen to be rewarding poor performance.

Jane Byford
Partner and Head of Employment & Pensions Group
T: 0870 763 1378
E: jane.byford@sghmartineau.com

© Martineau 2009

Part-time workers must find a real comparator to successfully claim less favourable treatment | back to top

On 15 May 2009, the Employment Appeal Tribunal (EAT) handed down its judgment in Carl v University of Sheffield which brings both and good and bad news for employers.

Facts

Mrs Carl taught shorthand in the Journalism Department at the University on a part-time basis. She complained that she had been treated less favourably than a named comparator, Ms McClelland, who worked under a full-time University Teacher’s contract, in that Ms McClelland was paid for preparation time and Mrs Carl was not.

Tribunal’s decision

The Employment Tribunal found that Ms McClelland was not a true comparator and accepted that Mrs Carl could therefore rely on a hypothetical comparator. The Tribunal went on to find that there had been no less favourable treatment. Mrs Carl appealed the judgment.

Employment Appeal Tribunal

The EAT considered two questions:

(1) whether a claimant is permitted to rely on a hypothetical comparator in order to show unlawful less favourable treatment under the Part Time Workers (Prevention of Less Favourable Treatment) Regulations 2000 ("the Regulations"); and

(2) whether a claimant must show that the treatment was solely on the ground of part-time status.

In addition the EAT considered whether the Tribunal had followed the correct approach when deciding that a particular individual was an unsuitable comparator under the Regulations.

The EAT held that the Regulations were clear and required a comparison with an actual comparator, and not a hypothetical one. They did not follow direct discrimination provisions where hypothetical comparators are allowed, in which there is reference to how the alleged discriminator "treats or would treat" a comparator.

The EAT went on to resolve a conflict of EAT authority dealing with whether it was necessary that part-time status was the sole ground for less favourable treatment. The EAT held that part-time work must be the effective and predominant cause of the less favourable treatment complained of; it need not be the only cause.

The EAT went on to conclude that Ms McClelland was not a true comparator because her role was both vocational and academic and Mrs Carl’s was purely vocational. Ms McClelland’s academic qualifications and experience went “way beyond” that of Mrs Carl’s, the latter teaching up to NVQ3 standard and the former up to PhD level.

Conclusion

Although the judgment makes it more difficult for an employee to successfully bring a claim for less favourable treatment under the Regulations by requiring them to identify a real comparator, it has, at the same time, made it easier by not requiring the sole reason for the treatment to be the part-time work. However, the discussion in the judgment (at paragraphs 44 to 50) concluding that Ms McClelland was not a true comparator should provide some reassurance to universities that this requirement is likely to put more of a burden on a potential claimant than the burden removed by getting rid of the need for part-time work to be the sole reason.

Sian Howells
Solicitor, Employment & Pensions Group
T: 0870 763 1446
E: sian.howells@sghmartineau.com

© Martineau 2009

© Martineau

The bulletin contains a summary of complicated issues and should not be relied upon for specific matters. You are advised to take legal advice on particular problems. Please contact us and we will be happy to assist.